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Patent reform fight ends in retreat — for now

WINOOSKI, Vt. — After nearly two years of effort, MyWebGrocer Chief Operating Officer Jerry Tarrant has seen his crusade to fight back against patent trolls come to nothing. Tarrant was stunned and bitterly

Patent reform fight ends in retreat — for now

Sen. Patrick Leahy, D-Vt., appears in December with Jerry Tarrant, COO of MyWebGrocer, to talk about how the Winooski, Vt.-based company spent $100,000 dealing with groups that claimed the Internet grocery marketing business infringed on their patents.(Photo: Ryan Mercer, The Burlington (Vt.) Free Press)

WINOOSKI, Vt. — After nearly two years of effort, MyWebGrocer Chief Operating Officer Jerry Tarrant has seen his crusade to fight back against patent trolls come to nothing.

Tarrant was stunned and bitterly disappointed in May when U.S. Sen. Patrick Leahy, D-Vt., abruptly dropped a bill addressing the practices of trolls — companies, usually shells, that threaten to sue businesses such as MyWebGrocer over frivolous, and often ridiculous, patent infringement claims. Leahy took the bill off the agenda of the Senate Judiciary Committee he chairs just as the measure appeared to be nearing a vote.

Trolls scour the legal landscape for vaguely worded, broadly defined patents, often buying them from bankrupt companies or small-time inventors. They set up shell companies whose only asset is a single patent. Then the letter writing begins.

The letters, often densely worded documents full of legalese, boil down to a simple demand: You are infringing on our patent. We will give you a license for a certain fee. If you don't pay, we'll sue you — implying it will cost a lot more to defend that lawsuit than the troll is demanding.

Tarrant found Leahy's action particularly hard to swallow given that a patent-troll bill passed, 325-91, in December in the ultra-contentious House of Representatives, and that President Barack Obama said he would sign a bill.

U.S. Rep. Peter Welch, D-Vt., called the vote in the House a "miracle of miracles."

"We had a bipartisan bill on a very important issue, protecting our small businesses, non-profits and entrepreneurs from these stick-up artists that are lower than low — patent trolls," Welch said in a recent interview.

Forced to drop the bill

So what could possibly have gone wrong in a Democratically controlled Senate?

In an interview with USA TODAY, Leahy said he was essentially forced to drop the bill by U.S. Senate Majority Leader Harry Reid.

"I am furious with what happened," Leahy said. "We worked so hard to get a coalition. Harry Reid and a couple of others said, 'We won't let it come to the floor.' I think that's wrong, but I'm not going to give up."

Leahy said opposition to the bill came primarily from the bio-pharmaceutical industry, along with universities and trial lawyers. The Vermont senator's postmortem confirmed rampant speculation in the Washington media that Reid had strong-armed Leahy at the behest of lobbyists representing those groups.

Asked about Reid's opposition, Leahy said only that Reid knew there were enough forces aligned against the patent-troll bill that it would be filibustered by Republicans and Democrats. Therefore, why bring it up?

Ron Eritano, director of federal affairs for The Normandy Group, a Washington lobbying firm, has been working with a variety of clients for the passage of a patent-troll bill. Eritano said the most outspoken opponents of the bill have been the bio-pharma companies, which hold large patent portfolios and like the laws governing patents the way they are.

"They've utilized the system for a long time, and it's worked very well for them, particularly as it relates to interactions with generic drug makers," said Eritano.

“We worked so hard to get a coalition. Harry Reid and a couple of others said, 'We won't let it come to the floor.' I think that's wrong, but I'm not going to give up.”

Sen. Patrick Leahy, D-Vt., on patent-troll legislation

Other industries and companies with large patent portfolios, particularly Johnson & Johnson and 3M, have lined up against the bill, too. Universities are worried that their research and development efforts could be hindered.

"Any time you tinker with ways to litigate patents, these folks are concerned it will affect the value of their portfolios," Eritano said.

Trial lawyers have come out against the reform, and particularly against fee shifting, which would make it easier to collect legal fees if the target of a patent-troll lawsuit demonstrates there was no patent infringement.

The idea behind that provision is to ensure that patent trolls have skin in the game. The prospect of paying your opponent's legal fees can be sobering, said Peter Kunin, a Burlington, Vt., attorney.

"This rule helps discourage a patent holder from bringing frivolous lawsuits, because the plaintiff bringing the suit knows that the trial court might require them to pay the target's legal fees," said Kunin.

The trial lawyers worry fee shifting as envisioned in the patent reform bill will inhibit the ability of legitimate plaintiffs to file lawsuits.

"The trial lawyers make a slippery slope argument, saying patent reform could set a precedent for other types of litigation," Eritano said.

Leahy, a former state's attorney in Vermont, said he was unconcerned about the opposition of trial lawyers as "it didn't affect them anyway."

Bad faith

When patent trolls strike, many companies opt to pay "licensing fees" rather than go to the trouble and expense of defending against the infringement claims. The practice was estimated by researchers at Boston University to have cost the nation's businesses $29 billion in 2011 alone, a figure cited by the White House in a June 2013 report, "Patent Assertion and U.S. Innovation."

“They've utilized the system for a long time, and it's worked very well for them, particularly as it relates to interactions with generic drug makers.”

Ron Eritano, director of federal affairs for The Normandy Group

Tarrant cites harassment by trolls for costing MyWebGrocer jobs during the last year. Tarrant's company works with major grocery chains across the country on digital marketing and sales.

"We have never paid any money to trolls," Tarrant said. "We've spent an enormous amount of money in defense costs. We had two different clients that were going to do bigger deals with us that pulled it back because of threats of patent trolls. I calculated eight to 10 people weren't hired."

High-tech companies — frequent targets of patent trolls — also have been pushing for reform legislation. In late April, Adobe, Apple, Cisco Systems, Dell, Facebook, Google, Oracle, Twitter and dozens of other companies sent a letter to Leahy and Sen. Chuck Grassley, R-Iowa, the ranking Republican on the Judiciary Committee, urging passage of patent-troll legislation.

"Today, abusive patent litigation is killing small companies, chilling employment and growth of all companies, and stifling the economies of a wide range of industries nationwide," the letter states. "Instead of investing in new jobs and services, businesses must fight frivolous claims and overly broad lawsuits made by patent trolls against a range of technologies and commonplace ideas."

Despite Leahy's determination to revisit the patent-troll bill this year, Eritano believes it will be early 2015 before the proposal returns.